Muted outlook at Wipro

BSE 31 Jul 15 | 12:00 AM

569.15

8 (1.43%)

NSE 31 Jul 15 | 12:00 AM

569.85

7.85 (1.4%)

The Wipro stock ended 3 per cent lower on Tuesday in reaction to its results and a muted guidance. As was the case with Infosys, Wipro too missed its guidance, though marginally. Against a guidance of $1,520-1,550 million, the company posted sales of $1,515 million for the quarter ended June 2012. Net profit, on the other hand, increased from Rs 1,490 crore in June 2011 to Rs 1,580 crore against market expectations of Rs 1,595 crore.

Along with the miss in achieving its guidance came a muted outlook for the future resulting in a fall in the stock price. Wipro’s guidance at $1,520-$1,550 million for the second quarter is the same as it had given for the first quarter. Analysts were expecting a 2-4 per cent QoQ growth in its guidance for Q2.

Like Infosys, Wipro’s results too highlight the trouble faced by the software services sector in both Europe and the US. While Infosys stopped providing the next quarter’s guidance, Wipro is expecting marginal to flat growth in its business.

A closer look at Wipro’s result reveals that the company is under stress, and that the pressure is likely to continue going forward. Constant currency revenue growth was only 0.3 per cent; however, this resulted in a revenue decline of 1.4 per cent on account of cross-currency impact. The company has been facing pricing pressure; while onsite price realisation fell by 0.9 per cent, offshore realisation declined 2 per cent. Wipro has not been able to increase its onsite revenues for the last three quarters and most of the volume growth is coming from higher offshore services.

As in the case of Infosys, Wipro too is facing attrition issues, with involuntary attrition jumping to its highest level since December 2009 at 3.2 per cent in Q1, while overall annualised attrition stood at 18.4 per cent.

In terms of growth in verticals, apart from manufacturing, all other segments posted lower sequential revenues. Finance Solutions, which accounts for over a quarter of revenues, posted a 2 per cent QoQ decline, while retail and transportation revenues fell by 3.9 per cent. Manufacturing, which contributes nearly 20 per cent to Wipro’s revenues, grew by 0.5 per cent.

Contribution from American markets fell by 2.2 per cent; while Europe grew by 0.3 per cent (constant currency growth was much higher at 1.4 per cent). Asia-Pacific threw in a surprise growing by 5.3 per cent; this region accounts for 10.2 per cent of Wipro’s sales.

Apart from TCS, results of Infosys and Wipro suggest the slowing demand and increasing competition in the sector. With Wipro pushing its Q1 guidance to Q2, the volatile nature of the market only gets highlighted. And if businesses themselves are facing volatility with a downward bias, stock prices will only reflect this reality.